The IRS has has invoked two gift-tax weapons in its attack on family limited partnerships: the gift-on-formation and indirect-gift arguments. While the former argument has thus far not enjoyed any success in the courts, the latter argument has been embraced by the Tax Court and the Eleventh Circuit in Shepherd and by the Eighth Circuit in Senda. Until the Eighth Circuit decision in Senda, taxpayers were able to navigate easily the indirect-gift argument by properly: sequencing the formation of the partnership and the gift of the partnership interest; or reflecting in the parent's capital account his or her contribution to the partnership. The Eighth Circuit has, however, in dicta, suggested that the indirect-gift argument can be applied in conjunction with the step transaction doctrine in order to deny discount. This article explores the partnership-formation process in light of Senda and the Eleventh Circuit's contrary dicta in Shepherd.

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The IRS treatment on Family Limited Partnerships has changed significantly since the writing of this article. In the case of
the estate of webster kelley, deceased, john louden and patricia louden, personal respresentatives, petitioner v. comissioner of internal revenue, respondent the court found that the cash assets of the Family Limited Partnership could be discounted 25%. It still is wise to be careful in ensuring that a valid reason beyond estate tax evasion for the partnership to exist.